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Believing (and Believing and Believing) in Bullion

On a recent early spring morning, I made my way down to the appropriately poker-faced and austere building that houses the Federal Reserve Bank of New York. In its sub-basement, 80 feet below street level, there is a vault that rests on the granite bedrock of Manhattan. "No man-made floor could hold the weight of all this," Peter Bakstansky, a Fed spokesman, assured me. The vault holds 7,000 tons of gold. This represents the world's largest stash of the precious metal, and it is worth about $100 billion. To view it, you descend to an underground bunker and pass through a narrow passageway cut into a 90-ton steel cylinder. Like most people, I'd seen gold before, though only in small quantities -- a filling here, a vanity wristwatch there. In front of me now, stacked in bricks atop wooden pallets, lay some pretty serious bling.

Gold is a majestic condenser of wealth. A standard bar is seven inches long, three and five-eighths inches wide, and about one and three-quarters inches thick. It weighs 27.4 pounds, and at the current market price -- roughly $420 a troy ounce, the unit in which gold is measured -- is worth about $170,000. As miraculous as gold is in itself -- it is soft, dense, ductile, sectile, highly conductive, all but indestructible and, of course, very beautiful -- when you look at any quantity of it, you immediately exchange it in your head for something else. One bar, college education; 10 bars, Brooklyn town house. The cage in front of me appeared fairly small. Filled to the ceiling with gold bars as it was, it might well hold the financial health of a nation in the balance.

Most of the bullion at the New York Fed is kept -- in 122 separate lockers -- in custody for foreign countries. (Most American gold is in Fort Knox.) There is something ancient and strange about the vault, in which workers wear magnesium shoe covers to protect their toes from falling ingots. Egyptians were casting bars of gold thousands of years ago; but the thrust of human history has been away from hard money and toward virtual money, like paper bills, or even little electronic pulses shot off by the trillion across the ether. When I remarked that all this brute physical wealth represented an anachronism, Bakstansky seized upon the word brightly.

"Yes, exactly. Gold is an anachronism."

"And yet," I said, "all these nations, they hold on to this anachronism, just in case. . . . "

At this, a light chill entered his voice. "I don't think anyone in a policy-making position," he explained to me politely, "seriously believes that everything else of value could disappear, leaving only gold." To a small but extremely avid subculture in the American financial community, gold doesn't mean bling, or King Midas, or them thar hills. Gold is money; and not just money, but the one true money. The gold subculture divides along several lines -- some of its members are gold speculators, some gold hoarders, some gold philosophers and some outright nut jobs -- but it unites behind a single idea: Paper money issued by governments, when not redeemable for actual gold, is fraudulent. Most of us accept the existence of dollar bills unconsciously. To the gold faithful, however, a dollar bill is "ink money," or better yet, "fiat currency," a nearly constant term of abuse at gold conferences and in gold chat rooms. "Fiat currency -- it's a floating abstraction," Doug Casey, a star speaker on the gold circuit, bellowed at me over the phone. "What's its worth? I don't know what it's worth! It's a figment of some government bureaucrat's imagination!"

The "gold bugs," as they often are referred to with more than a hint of disdain, find gold appealing because they believe it represents the one enduring form of nonstate money. "Money is far too important to be left in the hands of bankers, Congress or the Federal Reserve System," Gary North, a legendary gold bug who has edited financial newsletters for decades, told me via e-mail. North's Web commentaries include everything from advice regarding prostate problems (saw palmetto has helped his immensely) to a recently completed 700-page "economic commentary" on the Gospel of Luke, which he encourages readers to download onto their hard drives, in case he were to "drop dead and the site is taken down for any reason." But the focus of his writings is politics, and North's politics aren't hard to pin down. His is the fierce libertarianism of the ardent gold bug.

I had sought out Casey and North, two leading voices among gold enthusiasts, because after 20 years during which paper assets -- stocks, bonds, and the world's leading "fiat currency," the dollar -- soared, gold was making a comeback. If you bought $10,000 worth of gold in 1980, by 2001 you would have lost $6,800. But then the long bull market in stocks ended, and the dollar, responding to the growing debt burden of the average American, not to mention the federal debt and our trade deficit, began a steep decline. And so, starting in 2001, gold, which like many commodities moves in the opposite direction of the dollar, began to recover some of its lost glamour as a store of value. The price of gold broke through the $300 barrier in February 2002, then the $400 barrier at the end of 2003. Could this be the dawn of the apocalypse that the gold bugs, whose prevailing attitude might best be described as a wishful pessimism, have been predicting? Could the dollar collapse, leaving only gold?

"I will accept questions by e-mail," North wrote me, adding, "I will answer the following type question: 'In your article on [ ], you write that [ ]. But what about this? How could this work?"' I apparently phrased my first questions according to protocol, because North e-mailed me back, relaying his nine-point plan for returning gold to its proper status as the only money. Among his ideas: "Government collects tax payments in gold. . . . Abolish legal tender law. . . . Let anyone set up a bank/warehouse company who wants to." Gold bugs are notoriously squirrelly, and North had warned me ahead of time: no questions regarding the future price of gold, and all questions must hew closely to his published work. When I e-mailed him again, asking whether the rising price of gold might be signaling doom, I must have crossed some invisible line. His one-sentence reply read simply, "Here endeth the lesson."

For the past 70 years, the United States has been conducting an experiment regarding the dollar. The experiment asks: Can the United States manage its currency responsibly, without having that currency backed by gold? The U.S. effectively went off the gold standard twice in the 20th century, and both times responsible men in positions of power foresaw cataclysm. "This is the end of Western civilization!" Lewis Douglas, Franklin Roosevelt's budget director, declared in 1933, when Roosevelt terminated the right of American citizens to demand gold in exchange for their dollars. "Pravda would write that this was a sign of the collapse of capitalism," Arthur Burns, chairman of the Federal Reserve, warned Richard Nixon in 1971, when Nixon terminated the right of our international trading partners to demand gold in exchange for their dollars.

In spirit, the gold bugs are the heirs to Douglas and Burns. Every day is the end of Western civilization -- or should be, now that our currencies float free of gold. In fact, the recent weakness of the dollar has become an idée fixe within the gold community, as it opens up one possible route back to an economic system ballasted by gold. Representative Ron Paul, a Republican from Texas who is gold's lonely advocate in Congress, put it to me this way: "We will go back to the gold standard, even if it takes the near-destruction of the dollar to get there."

James Sinclair is a 64-year-old American businessman in a tan blazer and navy blue slacks. From his manner and dress, he could be host to an Amway seminar. But when he speaks, he sounds more like a karma yogi. It's as if you're watching a movie dubbed with the wrong soundtrack. "Silence is deep rest," Sinclair told me as we waited for sandwiches at a deli. "It's the only way to restructure ourselves." Among the most famous gold speculators, Sinclair proclaimed in the 70's that gold, then at $150 a troy ounce, would hit $900. (It eventually peaked at $887.50; he sold his position the following day, for a profit of more than $15 million.) Then, with some analysts predicting that gold could go as high as $2,000, he declared the gold bull market dead. (Within months, he was proved right.) In 2001, with gold near its bear-market lows, Sinclair told Forbes magazine that it could hit $430. On the day I met him, gold was trading at $434.

Sinclair remains a star attraction at gold conferences around the world, but in the 1980's he sold his brokerage firm and took his wife and two of his daughters to the foothills of the Berkshires, where he lives on a 40-acre equestrian compound featuring its own 9,000-gallon water system, its own electrical system and a shooting range. ("I like to cut a target every now and again," he told me. "Get out my aggressions.") Sinclair's private office sports the typical C.E.O. blandishments -- a massive mahogany desk, a wall-mounted flat-panel computer monitor -- but also a profusion of religious items. Incense always burns, and a temple gong sits in the corner, along with a prominently displayed statue of Ganesh. Behind the desk there is a full-color portrait of Bhagavan Sri Sathya Baba, whom Sinclair visits frequently in India. "I am an enquiring soul," he replied, when I asked if he was Hindu. "All the great minds have wandered the Indus Valley."

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Perhaps because he has found spiritual satisfaction elsewhere, Sinclair regards gold with dispassion. "Gold is not to be loved or hated, accepted or refused," he said. "Gold is not barbaric or angelic. It fixes nothing in itself. But it is a mirror." Sinclair sees the health of the dollar reflected in the price of gold, and the health of the dollar is now in foreign hands. "We're not talking about what I want, but about what is," he told me, as he picked through a tuna salad. "If we go over $529, that is not good news," he said, referring to the price of gold. "Anyone cheering for a high price of gold should get on Prozac." Sinclair says that when the dollar acts successfully as the world's currency, gold naturally returns to its status as a mere commodity. In the parlance, it demonetizes -- it loses out to the dollar as the world's reserve currency. But a mismanaged dollar, he said, could cause gold to remonetize. Our world would look very different then. "The first sign is the foreign banks will diversify out of dollars. Then they will cease buying dollars. And then they will sell them." What could happen then? "Stagflation. . . . Expansion of U.S. federal deficit. Expenses rise and incomes drop."

Are we talking apocalypse? "The most likely crisis is the collapse in the common stock of the operating entity. In this case, the operating entity is the United States, and the common stock is its currency." We had made our way up a hill, to Sinclair's koi pond and its accompanying meditation gazebo. As if on cue, what appeared to be a military airplane flew across the sky. "That's carrying Iraqi supplies," Sinclair told me. "We have war and monetary easing at the same time," he said, shaking his head. "Everything has its season. That includes gold. Do I have a bet on gold? You know I do. Will I one day unravel that bet? You know I will." The Daily Reckoning is a freewheeling Web site for libertarians, gold bugs and doom enthusiasts of every stripe. Its editorial director is Addison Wiggin, and before we met, I pictured an "Addison Wiggin" as an ancient gold-hoarding Yankee, and the offices of The Daily Reckoning as a cinder-block bunker patrolled by Minutemen. I was wrong on both counts. Wiggin is a sober, black-clad 37-year-old who is active in libertarian circles. The Daily Reckoning, meanwhile, is nestled in the lovely Mt. Vernon section of Baltimore, and its interior could pass for any 1990's dot-com, with a glass-enclosed conference room, exposed brick walls and a couple of nerdy 20-somethings in sneakers and T-shirts.

The narrative Wiggin spun out for me over lunch is repeated, nearly verbatim, by almost everyone in the gold community. "This is the blow-off phase for the Great Dollar Era. We're in an unsustainable trend right now," Wiggin told me, ticking off the miscalculations that have brought us to the brink of an economic apocalypse. To begin with, the U.S. has become the world's biggest debtor, with three outstanding obligations at alarming highs: consumer debt, or our mortgages and credit cards; the federal deficit; and our current account deficit with foreign countries. Federal Reserve Chairman Alan Greenspan, Wiggin continued, has simply shifted one bubble -- the 90's bubble in stocks and bonds -- into another, in real estate and "overconsumption," or the American propensity to pay for an ever-more-lavish lifestyle on credit.

But the real nightmare involves the U.S. dollar. If Asian central banks weary of buying Treasury bonds -- an asset denominated in the weakening dollar -- then look out below. "What is that Dylan Thomas quote?" Wiggin wondered over his fusilli. "The dollar will not go gently into that great night."

Wiggin offered up his analysis with a confident and steady aplomb. And for good reason. While no one in the mainstream financial elite seriously advocates a return to the gold standard -- the modern global economy is too fluid and dynamic for such austere discipline -- at this moment, the gold bugs' grim prognosis for the dollar happens to align with a more mainstream view. A low-level panic about the debt crisis, and its possible effect on the American economy, is gathering strength. "Our little post-bubble workout is not over, not by any stretch of the imagination," Stephen Roach, the chief economist at Morgan Stanley and himself a noted pessimist, told me recently by phone. Roach says he firmly believes that an adjustment is necessary and inevitable, and that when it comes, it will be very, very painful. From appearances, Warren Buffett, the savviest investor who ever lived, agrees. His company, Berkshire Hathaway, has placed a $21 billion bet against the U.S. dollar.

Meanwhile, the general tone is darkening. In February, Paul Volcker, the former Federal Reserve chairman, publicly stated in a speech that "there are disturbing trends" undergirding the U.S. economy, including "huge imbalances, disequilibria, risks." These demand "a strong sense of monetary and fiscal discipline," he said, gently chiding both the U.S. government and its citizens to live within their means. Volcker, a man known for his prudence and a cautious tone, let his words ring ominously. "Altogether, the circumstances seem to me as dangerous and intractable as any I can remember," Volcker continued, referring to the very same warning signs as Addison Wiggin, "and I can remember quite a lot."

Recently, Comptroller General David Walker, surveying America's debt crisis, uttered a one-word synopsis for the long-term future: "Argentina." Money is entirely conventional. It's a system of equivalence, a medium of exchange. In a society of any sophistication whatsoever, money is used reflexively. You hand me 50 cowrie shells, I give you a head of cattle. I give you a 20, you give me a tuna on rye and some change. As the greatest theorist of money, the German sociologist Georg Simmel, recognized, money is only money when it is in motion: "When money stands still, it is no longer money according to its specific value and significance." Furthermore, the set of conventions that lend money its credibility as a medium of exchange must be universal and stable, so that the shells for which I relinquished my good cow today will be worth as much tomorrow, when I exchange them for something else. Money is built on motion and trust.

Gold, like everything else, is a commodity whose price is established by supply and demand. But gold is unlike everything else in that an ancient fantasy of solidity attaches to it. We produce things, but to exchange them efficiently, we throw over them what economists refer to as "the veil of money." Interest rate swaps, swap curves, swaptions -- the veil only thickens with time. If the gold bugs are apocalyptic, it's worth recalling the etymology of the word "apocalypse": to uncover or reveal. Gold holds out the promise, however chimerical, that one day we might pierce the veil of money.

On the final leg of my tour of gold bugs, I visited the Blanchard Company in New Orleans. Blanchard is the largest retailer of gold to the American public, and it is owned and run by Donald Doyle, a soft-spoken man who might well be the living embodiment of the metal he sells: there is something soft but indestructible about his courtly Southern manner. After talking gold for the better part of an hour, we descended to the company vault. There he picked up two coins and placed one into each of my hands. They were "Saint-Gaudens," named after the great American sculptor who designed them for Teddy Roosevelt. They had a face value of $20 and a value based on the amount of gold they contain -- probably a few hundred dollars. But the ornate coins were impossible to stack, and had been discontinued after a short run. On the open market now, thanks to their rarity, the coins together might fetch $800,000. They were heavy, and transfixingly beautiful, and even as I did the math in my head -- five coins, Brooklyn town house -- I heard Doyle say over my shoulder, "And they sure feel good in your hands, don't they?"

Stephen Metcalf is the book critic for Slate and a regular contributor to The Times Book Review.

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A version of this article appears in print on June 5, 2005, on Page 6006038 of the National edition with the headline: Believing [and Believing and Believing] in Bullion. Today's Paper|Subscribe